Ramki Ramakrishnan's  Instablog

As many of you are aware, this stock has been on a dream run in the last few years, and was one of the best performers in the Dow last year. However, there were some warning signs that was evident to the Elliott Wave analyst. On January 4, 2012, I had posted an article on Forbes why McDonald's dream run was almost over, urging investors to get out of the stock on any recovery back near the high seen until then ($101.45). The stock posted a high at $102.22 on Jan 20, and after a few days of sideways movement, during which some distribution has taken place, it has finally broken down.

Some of you might be tempted to use this dip to add McDonald's to your portfolios. However, I would urge you to be patient because the stock could go down to around $87 in a relatively short period of time. You might see a brief recovery from near $92.10, but I very much doubt if it can get back past $98. In fact, if you are still long of this stock, use any direct recovery near there to exit because another bad report from McDonald's will send the stock down to $74.

Elliott Wave analysis of McDonald's Inc suggests that a five wave rally from the March 2003 low of $12.12 has been completed at the recent high of $102.22. Even if we take a 23.6% retracement as the minimum correction of this mammoth rally, we will get an objective of around $81. Of course, it is not going to be a straight line move, especially given the fact that there will be buyers at various levels as we move down. But the patient investor who can wait for the sweet spot will be amply rewarded. -Ramki Ramakrishnan, www.wavetimes.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.